Educational Articles

From the Survey: Iron Mountain

Oriatal J. Haiby
| April 12, 2014

Iron Mountain (IRM) is an industry leader in records storage and information management services. It has operations in 39 countries, serving 140,000 customers. The company was originally founded in 1951 by entrepreneur Herman Knaust, who initially purchased land for his business of growing and marketing mushrooms. However, the mushroom business soon failed, and Knaust used his land for a new business venture; protecting essential information. After the introduction of atomic warfare at the end of World War II, document storage became more of a priority. Mr. Knaust began offering such a service, calling his business Iron Mountain Atomic Storage Corporation. In fact, the Empire State Building became one of the first locations for a sales office. In early 1970, Iron Mountain was acquired by Vincent J. Ryan.

Acquisitions and Mergers

In 1983, Iron Mountain expanded into Boston with its acquisition of New England Storage Warehouse, which opened up opportunities for the company in medical and legal records management services. In 1988, the company took a leap forward and became a nationwide services provider, with the purchase of Bell & Howell Records. The combined company then had a presence in 12 major U.S markets. Since then, Iron Mountain has remained active on the acquisition front. In order to help fund its purchases, Iron Mountain completed its initial public offering in 1996. Iron Mountain has grown considerably over the years with revenues rising from $3 million in 1981, to more than $3 billion by the end of 2013. In anticipation of further growth, William Meany became the company’s CEO last year. This news was no shock to the Iron Mountain team, as former CEO and Chairman, Richard Reese had plans to retire from the company. Mr. Meany entered the company with global experience, which should help Iron Mountain expand into new territories and regions.

Transition Plan

The Massachusetts-headquartered company is one of many nontraditional real estate businesses. Now, though, it is in the process of realigning its corporate structure by switching to a real estate investment trust (REIT) format. This has been a soaring sector in the stock market over the past couple of years. Although IRM’s business, at first glance, does not suggest real estate, it does, in fact, sell secure storage space, which can be viewed as rental operations.

REIT Advantage

As a result of this pending conversion, profits earned by Iron Mountain will be untaxed and funneled directly to shareholders, resulting in a sizable dividend payout. For this reason, this form of investment tends to lure in value-oriented investors, rather than those who are more growth focused. Stocks with healthy dividend yields tend to hold up better in down markets

Looking ahead

The company has successfully completed the internal work necessary for REIT-structure compliance with capital and operating requirements. As such, IRM began operating in a manner consistent with being a REIT as of January 1, 2014, despite the lack of final regulatory approval. That said, management notes that it does not intend on making quarterly updates on the nature of the private letter ruling associated with REIT status. Still, IRM reinforced its commitment to enhancing shareholder value, regardless of the business structure. The information management company continues to implement its strategic plan of sustaining high profits and solid cash flow on the home front, while driving strong growth and higher returns across the globe. In all, it claims that the REIT plan does not affect its strategy, however, finalization would likely enhance shareholder returns. A majority of IRM’s income evolves from storage rental space. Should the REIT structure be accepted by the U.S. Internal Revenue Service (IRS) and other governing bodies, the Boston-based storage operator would probably compete with self-storage REITs like Public Storage (PSA), and other data center developers such as Digital Realty Trust (DLR).

For more information regarding IRM’s prospects, subscribers are encouraged to carefully review our full-page report in The Value Line Investment Survey.

At the time of this writing, the author did not have any positions in the companies mentioned.